Insights

Financial Services Report (6/24)

June 24, 2019
The House will finish up consideration of its second appropriations “minibus” early in the week before turning to the three more bills: (1) a supplemental appropriations bill to provide funding for border crisis; (2) legislation to secure our elections; and (3) the Financial Services and General Government (FSGG) spending bill. If past is precedent there is a good chance that there could be a significant number of amendments to the FSGG, though as of this writing only twenty-four (24) have been filed (though the deadline is 5pm today).
 
This week also marks the premier of the Financial Services Committee Task Forces on Financial Technology and Artificial Intelligence will hold their inaugural hearings on Tuesday and Wednesday respectively. Also this week, the Diveristy and Inclusion Subcommmittee will hold a hearing on the asset management industry, while the full Committee will mark-up the Ex-Im bill as well as a Housing measure. In the Energy and Commerce Committee there will be a subcommittee mark-up of a bipartisan deal on legislation to Stop Robocalls.
 
The Senate will continue to debate the National Defense Authorization Act (NDAA) while the Senate Banking Committee will old two hearings this week. One on Fannie and Freddie and the other on Ex-Im. Meanwhile the Senate Commerce Committee continues its work on privacy with a hearing on internet platforms.
 

Last Week in the House
The Floor
 
After finally passing its first four-bill appropriations minibus on Wednesday, the House immediately turned its attention to debating amendments to its second spending package consisting of the Agriculture, Commerce-Justice-Science, Interior-Environment, Military Construction-Veterans' Affairs, and Transportation-Housing and Urban Development appropriations bills. The House is expected to pass the package early this week.
 
Of note on the financial services front, the minibus's T-HUD bill provides $50.1 billion to the Department of Housing and Urban Development and includes a number of housing-related policy riders. More information can be found in the bill's fact sheet and section-by-section summary, and a list of amendments can be found here.
 
Hearings and Markups
 
HFSC Trade Hearing (6/19): On Wednesday, the Financial Services Subcommittee on National Security held a hearing examining the impact of the Trump Administration's trade policies. Led by Subcommittee Chairman Emanuel Cleaver (D-MO), Committee Democrats used the hearing to continue criticism of the Administration's aggressive trade policies towards China, Canada, Mexico, and other trade partners. While expressing concern at the impact of the trade war on farmers and other workers, Subcommittee Ranking Member Steve Stivers (R-OH) cautioned that "we shouldn't oversimplify the issue" of China's predatory economic practices.
 
USTR (6/19): On Wednesday, US Trade Representative Robert Lighthizer appeared before the House Ways and Means Committee to discuss President Trump's Trade agenda, most notably the United States-Canada-Mexico Agreement and the trade standoff with China. As expected, House Democrats continued their skepticism of the White House's NAFTA replacement deal, most notably its labor, enforcement, and environment provisions. "We need assurances from you that you will give us the space and the time to work out these complex issues," Chairman Richard Neal (D-MA) said in his opening statement. Democrats also harshly criticized the President's use of tariffs, and the threat thereof, to achieve trade priorities.
 
Investor Protections (6/19): On Wednesday, the Financial Services Subcommittee on Investor Protections held a hearing during which Members debated several legislative proposals to enhance enforcement against securities laws violators, including bills that would: (1) prohibit publicly traded firms from using foreign auditors that cannot be inspected by PCAOB; (2) increase limits on SEC civil monetary penalties; (3) establish a PCAOB whistleblower program; (4) make PCAOB proceedings open to the public; (5) exempt restitution and disgorgement form a five-year statute of limitations; (6) require publicly traded companies to disclose whether executives or shareholders bear the cost of fines; (7) expand the statute of limitation for civil monetary penalties to 10 years; and (8) prohibit "bad actors" from using provisions in securities laws allowing companies to operate with decreased oversight.
 
Notably during the hearing, Subcommittee Ranking Member Bill Huizenga (R-MI) expressed interest in working with Democrats on legislation allowing SEC to recover ill-gotten gains outside outside of the statute of limitations, which would reverse the recent Kokesh v SEC court decision.
 
Corporate Board Diversity (6/20): On Thursday, the Financial Services Committee held a hearing examining proposals to increase corporate board diversity during which participants noted that despite improvements, diverse perspectives remain underrepresented on corporate boards. Commonly cited trends responsible for this phenomenon include a reliance on candidates with CEO experience, as well as a low rate of board turnover. During the question and answer period, Committee Democrats expressed interest in legislative proposals to increase corporate board diversity—including mandating diversity disclosures and increasing worker representation on boards. For their part, a significant number of Committee Republicans expressed interest in witness testimony indicating that board culture, rather than representation exclusively, determines the role that diversity has in a company’s financial success.
 
Appraisals (6/20): On Thursday, the Financial Services Housing Subcommittee held a hearing examining the appraisal industry. During the hearing, lawmakers considered two pieces of legislation intended to improve the home appraisal process: (1) Rep. Brad Sherman's (D-CA) Homebuyer Assistance Act (HR 2852) which would allow licensed appraisers to conduct appraisals for FHA-backed mortgages, in addition to certified appraisers, as well align FHA appraisal standards with those of government-sponsored housing entities and set minimum education requirements for FHA appraisers; and (2) draft legislation (text) providing the Federal Financial Institutions Examination Council's Appraisal Subcommittee with increased flexibility to set and allocate fees assessed on appraisal management companies.
 
Bills Introduced
 
Reward Work Act (Garcia and Khanna): Prohibits stock buybacks. The bill is the House companion to legislation introduced by Sen. Tammy Baldwin (D-WI) in March.
 
LGBTQ Business Equal Credit Enforcement and Investment Act (Rouda): Requires the reporting of loan data to LGBTQ-owned businesses under the Equal Credit Opportunity Act.
 
Small Business Bankruptcy (Cline, Cicilline, Collins, and Cohen): Creates a streamlined Chapter 11 bankruptcy process for small businesses. The bill is the House companion to Sen. Chuck Grassley's (R-IA) Small Business Reorganization Act, which was introduced in April.
 
Locking Up Robocallers Act (McEachin and Olson): Directs FCC to provide evidence of illegal robocalls to the Attorney General.
 
Taxpayer Protection and Preparer Proficiency Act (Yoho and Panetta): Allows IRS to set minimum standards for paid tax preparers. The legislation is the House companion to Senate legislation sponsored by Sens. Ron Wyden (D-OR) and Ben Cardin (D-MD).
 
Other Activity
 
Ex-Im Reauthorization: On Tuesday, House Financial Services Committee Chairwoman Maxine Waters (D-CA) and Ranking Member Patrick McHenry reached an agreement that would reauthorize the Export Import Bank—the charter of which is currently set to expire on September 30—for seven years. Besides reauthorizing the bank, the circulated draft legislation would also limit the bank's ability to do business with state-owned enterprises, allow the bank to continue operating in the event that the Senate fails to confirm a quorum of its board members, and rebrand it as the United Stated Export Finance Agency. The legislation is part of Wednesday's markup, though it is unclear whether several moderate were appeased by a managers' amendment that was circulated over the weekend.
 
Assuming that the bill is able to get through the Committee, this will be the second bipartisan compromise to come out of the Financial Services Committee this month, following Chairwoman Waters and Ranking Member McHenry's flood insurance reauthorization proposal. Though both still have a bumpy road to passage through the full House, but could be on the floor in July.
 
New Dem Housing Report: On Wednesday, the New Democrat Coalition Housing Task Force released its preliminary findings report entitled "Millions of Missing Homes," which keyed in on the an insufficient number of housing units as the driver of the affordable housing crisis. Marking the release, Housing Task Force Co-Chair Rep. Denny Heck (D-WA) commented: “Number one, we have a housing shortage. By the least estimate, there are five million fewer housing units in this country than there is demand for."
 
E+C Robocall Compromise: On Thursday, Energy and Commerce Committee Chairman Frank Pallone (D-NJ) and Ranking Member Greg Walden (R-OR) jointly reintroduced Chairman Pallone's Stopping Bad Robocalls Act (text; summary), announcing a bipartisan compromise on the robocall legislation. Most notably, the legislation would: (1) instruct FCC to publish rules ensuring that robocalls only be made with consumers' consent, as well as rules preventing the "abuse" of provisions allowing companies such as financial services companies to make calls without consent; (2) require carriers to implement call authentication technology; (3) allow carriers to offer call blocking services at no additional charge; and (4) increase FCC enforcement authority against illegal calls.
 
In particular, the bill takes a significantly more stringent approach towards legal but unwanted robocalls than does the Senate-passed TRACED Act, a stance which has sparked concern among some stakeholders in the financial services industry who rely on robocalls to reach customers.
 
Last Week in the Senate
The Floor

On Thursday, the Senate approved a slate of several nominees by unanimous consent, including:

  • Allison Lee to be a Member of the Securities and Exchange Commission, filling a vacant Democratic seat.

  • Dino Falaschetti to be Director of the Office of Financial Research

  • Bimal Patel to be an Assistant Secretary of the Treasury for Financial Institutions

  • Seth Appleton to be Assistant HUD Secretary for Policy Development and Research

  • Hunter Kurtz to be Assistant HUD Secretary for Public and Indian Housing

Hearings and Markups
 
USTR (6/18): On Tuesday, the Finance Committee held a hearing on the President's trade agenda featuring testimony from US Trade Representative Robert Lighthizer, during which Democrats displayed continued skepticism towards the White House's USMCA trade deal (see House). In his opening statement, Committee Chairman Chuck Grassley (R-IA) called USMCA "a solid deal to enhance this critical relationship with our good neighbors" but cautioned against the continued use of retaliatory tariffs as a primary tool of trade policy. On the Democratic side of the dais, Ranking Member Ron Wyden (D-OR) was broadly skeptical of the President's trade strategy, saying that "the president’s actions have driven away our allies, and there is no discernable strategy guiding the way forward." In one notable exchange, Ambassador Lighthizer indicated an interest in working with Members to "plus up" the USMCA's enforcement provisions.
 
TRIA (6/18): On Tuesday, the Banking Committee held a hearing on the reauthorization of the Terrorism Risk Insurance Act, which is currently set to expire at the end of 2020. During the brief hearing, Members broadly supported the timely reauthorization of TRIA and discussed issues including the role of the private insurance market, risk mitigation, and the adaptation of the program to emerging threats. 
 
Banking Nominees (6/18): On Tuesday afternoon, the Banking Committee approved five nominees after failing to obtain a quorum for its executive session scheduled for that morning. Nominees advanced by the committee included: (1) Michelle Bowman to be a Member of the Federal Reserve Board of Governors; (2) Allison Lee to be a Member of the Securities and Exchange Commission; (3) Paul Shmotolokha to be First Vice President of the Export-Import Bank; (4) Thomas Feddo to be Assistant Secretary of the Treasury for Investment Security; and (5) Ian Steff to be Director General of the United States Foreign and Commercial Service. Ms. Lee's nomination was swiftly taken up by the Senate, which confirmed her by unanimous consent on Thursday.
 
Beneficial Ownership (6/19): On Wednesday, both the Banking and the Judiciary committees independently held hearings examining the collection of beneficial ownership legislation — further evidence that the issue is gaining momentum in this Congress. The Banking Committee's hearing focused on stakeholder perspectives on beneficial ownership, with Committee Chairman Mike Crapo (R-ID) noting that "bipartisan support for beneficial ownership legislation continues to build" and calling for members to "critically examine how the AML/BSA regime can be modernized." The Judiciary's Committee's hearing featured the testimony of legal professionals and accompanied the introduction of two pieces of beneficial ownership and anti-money laundering legislation by Committee members.
 
Bills Introduced
 
TITLE Act (Whitehouse and Grassley): Requires state governments to collect information on the true owners of corporations and LCCs formed within their borders and make that information available to law enforcement upon receipt of a subpoena or summons.
 
Combating Money Laundering, Terrorist Financing, and Counterfeiting Act (Grassley, Feinstein, Cornyn, Whitehouse, and Klobuchar): Contains a number of provisions intended to modernize criminal money laundering laws, update counterfeiting statutes to prohibit state of the art counterfeiting techniques, enhance tools to crack down on smugglers. and promote transparency in the US financial system. A summary of the bipartisan legislation can be found here.
 
Homeownership for Dreamers Act (Menendez): Clarifies that DACA recipients cannot be denied government-backed mortgages solely because of their immigration status. Rep. Juan Vargas (D-CA) previously introduced companion legislation in the House.
 
Mixed Status Family Housing (Gillibrand): Blocks a proposed HUD rule prohibiting mixed immigration status families from receiving housing benefits. House legislation has previously been introduced by Rep. Sylvia Garcia (D-TX).
 
Other Activity
 
Eric Blankenstien Letter: On Thursday, Banking Committee Ranking Member Sherrod Brown (D-OH) sent a letter to the Inspector General for the Fed and CFPB requesting any documents relating to its investigation into former CFPB fair lending official Eric Blankenstein, following recent reports that he was offered employment by the Department of Housing and Urban Development. Prior to his stepping down in May, Mr. Blankenstein's employment at CFPB had sparked backlash following the revelation of racist social media posts.
 
HUD Hatch Act Letter: On Thursday, Banking Committee Ranking Member Sherrod Brown sent a letter to HUD Secretary Ben Carson raising concerns that HUD Regional Administrator Lynne Patton's usage of official social media accounts for political messages violates the Hatch Act, the decades-old law that limits certain political activities by federal employees. On May 22, Ms. Patton retweeted a partisan message to her HUD account that stated: "I find it funny how liberals will laugh & mock Ben Carson for a simple miscommunication yet praise Ocasio-Cortez as if she's a genius."
 
GAO Fiduciary Rule Letter: On Friday, HELP Committee Ranking Member Patty Muray (D-WA) and House Educational and Labor Committee Chairman Bobby Scott (D-VA) sent a letter requesting a a study on how the financial services industry responded to the 2016 Department of Labor Fiduciary Rule, which was struck down by a court order. Claiming that since the rule's elimination DOL "appears to have done little, if anything to warn retirement savers that they are now vulnerable," the letter's authors pose a series of questions, including to what extent firms that had already implemented Fiduciary Rule standards have continued to implement them.
 
Last Week in the Administration
 
Facebook-Led Cryptocurrency Draws Scrutiny
On Monday, the Libra Association formally announced the launch of the long rumored Libra cryptocurrency, putting Facebook and the association's other members under the microscope of financial regulators. Set to launch in 2020, the blockchain-based asset will be backed by a basket of global assets, unlike traditional cryptocurrency, and according to its announcement, focus on the inclusion of those who currently lack access to financial services. Despite the significant attention paid to Facebook's central role in the coin's development, as well as the social network's intention to launch its Calibra digital wallet built around the system, Facebook will only control one vote in Libra's governance, sharing power with other investors including Uber, Paypal, Mastercard, and Spotify.
 
The announcement quickly elicited pushback from Capitol Hill and is likely to feature prominently in ongoing debates around fintech, privacy, and money laundering. House Financial Service Committee Chairwoman Maxine Waters called for a moratorium on the product's launch in light Facebook's "troubled past." Similarly, Senate Banking Committee Ranking Member Sherrod Brown (D-OH) warned that: "We cannot allow Facebook to run a risky new cryptocurrency out of a Swiss bank account without oversight." Banking Committee Chairman Mike Crapo (R-ID) scheduled a July 16 hearing on the product.
 
USMCA Dominates Trudeau Visit to Washington
On Thursday, Canadian Prime Minister Justin Trudeau met with President Trump at the White House, where the two leaders discussed the United States-Mexico-Canada Agreement. "It was my great honor to host Canadian Prime Minister Justin Trudeau at the White House today," President Trump tweeted following the meeting, a marked improvement over a year ago, when he called his counterpart up north "dishonest" and "weak." Prime Minister Trudeau also met with Congressional leadership while he was in Washington, receiving a status update on Congressional approval of USMCA the same week that Mexico became the first country to pass the trade deal.
 
Fed Holds Rates Steady, Despite Setting Stage for Future Cut
On Wednesday, the Federal Open Market Commission voted to hold benchmark interest rates steady at 2.25-2.5 percent while setting the stage for an interest rate cut in the coming months. In a statement accompanying the announcement, FOMC noted that "uncertainties about this outlook have increased" and that "In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion," a nod to increasing concerns of decelerating growth and increasing economic anxiety.
 
Throughout the week, reports emerged that President Trump had been promoting a theory that would allow him to demote Fed Chairman Jerome Powell in light of the President's ongoing criticism of the central bank's interest rate policies—an idea that was met with skepticism from White House lawyers. Despite commenting "let's see what happens" prior to the vote, the President seemed to walk back speculation that he would try to fire the Fed Chair on Thursday, saying "eventually he'll do what's right."
 
Stress Test Results Indicate Sufficient Capital in Banking System.
On Friday, the Federal Reserve released the results of its supervisory stress tests, which found that the nation's largest banks have capital reserves that would allow them to stay above minimum requirements even in a severe hypothetical recession. Under the scenario, which includes unemployment rates of 10 percent, the exercise predicted that the 18 participating banks would suffer $410 billion in total losses, while their aggregate common equity tier 1 capital ratio would fall from 12.3 to 9.2 percent. "The results confirm that our financial system remains resilient, commented Fed Vice Chairman for Supervision Randal Quarles. Pursuant to last year's banking regulatory relief bill, only the nation's largest and most complex banks were scrutinized this exam cycle, with smaller banks recently being moved to a biannual schedule.
 
Bank Regulators Finalize Reporting Rule
On Monday, the Federal Deposit Insurance Corporation, Federal Reserve, and Office of the Comptroller of the Currency adopted a final rule streamlining reporting requirements for small financial institutions. Implementing Section 205 of last year's Economic Growth, Regulatory Relief, and Consumer Protection Act, the rule would permit insured depository institutions with assets less than $5 billion that do not engage in certain activities to file the most simplified version of the call report.
 

This Week's Schedule

Mon. (6/24)

  • CFPB Symposium on Abusive Acts or Practices – 9:00 AM – The Consumer Financial Protection Bureau (CFPB) will hold a symposium on policy issues relating to the abusive standard under the Dodd-Frank Act. Details here.

Tues. (6/25)

  • Hearing: Senate Banking Committee on Fannie and Freddie – 10:00 AM – The Senate Committee on Banking, Housing, and Urban Affairs will hold a hearing entitled “Should Fannie Mae and Freddie Mac be Designated as Systemically Important Financial Institutions?" Details here.

  • Hearing: Senate Commerce Committee on Internet Platforms – 10:00 AM – The Senate Committee on Commerce, Science, and Transportation will hold a hearing entitled “Optimizing for Engagement: Understanding the Use of Persuasive Technology on Internet Platforms." Details here.

  • Hearing: House Financial Services Sub. on Diverse Asset Managers – 10:00 AM – The House Financial Services Subcommittee on Diversity and Inclusion will hold a hearing entitled "Diverse Asset Managers: Challenges, Solutions and Opportunities for Inclusion." Details here.

  • Hearing: House Judiciary Sub. on Bankruptcy Law – 10:00 AM – The House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law will hold a hearing entitled "Oversight of Bankruptcy Law and Legislative Proposals." Details here.

  • Hearing: House Ways and Means Sub. on the SALT Deduction – 10:00 AM – The House Ways and Means Subcommittee on Select Revenue Measures will hold a hearing entitled "How Recent Limitations to the SALT Deduction Harm Communities, Schools, First Responders, and Housing Values." Details here.

  • Hearing: House Financial Services Financial Technology Taskforce – 2:00 PM – The House Financial Services Task Force on Financial Technology will hold a hearing entitled "Overseeing the Fintech Revolution: Domestic and International Perspectives on Fintech Regulation." Details here.

  • Hearing: House Ways and Means Sub. on USMCA – 2:00 PM – The House Ways and Means Subcommittee on Trade will hold a hearing entitled "Mexico’s Labor Reform: Opportunities and Challenges for an Improved NAFTA." Details here.

  • Hearing: House Ways and Means Sub. on Federal Treatment of State and Local Taxes – 2:00 PM – The House Ways and Means Subcommittee on Select Revenue Measures will hold a Members’ Day hearing focused on the recent changes made to the federal tax treatment of state and local taxes. Details here.

Wed. (6/26)

  • Hearing: House Financial Services Artificial Intelligence Taskforce – 10:00 AM – The House Financial Services Task Force on Artificial Intelligence will hold a hearing entitled "Perspectives on Artificial Intelligence: Where We Are and the Next Frontier in Financial Services." Details here.

  • Hearing: House Judiciary Committee on the U.S. Copyright Office – 10:00 AM – The House Judiciary Committee will hold an oversight hearing of the U.S. Copyright Office. Details here.

  • Markup: House Financial Services Committee – 12:30 PM – The House Financial Services Committee will hold a markup to consider pending legislation. Details here.

  • Hearing: Senate Small Business Committee on SBA's Small Business Investment Company Program – 2:30 PM – The Senate Committee on Small Business and Entrepreneurship will hold a hearing on reauthorization of the Small Business Administration's (SBA) Small Business Investment Company Program. Details here.

Thurs. (6/27)

  • Hearing: Senate Banking Committee on the Ex-Im Bank – 10:00 AM – The Senate Committee on Banking, Housing, and Urban Affairs will hold a hearing to discuss reauthorization and oversight of the Export-Import (Ex-Im) bank. Details here.

Fri. (6/28)

  • No events scheduled.